The Bottom Billion

Paul Collier‘s slim and informative volume is true to my recollection of the man from Oxford. The Bottom Billion: Why the Poorest Countries are Failing and What Can Be Done About It is engaging, concise, and powerfully argued. It is also unsparing in its criticism. Collier explains that the ‘developing world’ consists of two groups of states: those experiencing sustained growth and thus seeing their standard of living converging with those in the rich world and those that are ‘stuck’ in poverty, with stagnant growth or absolute decline.

Poverty traps

The ‘stuck’ states – where the world’s poorest billion inhabitants are concentrated – are trapped in one of four ways: by conflict, natural resources, being landlocked with bad neighbours, and by bad governance. States can be trapped in more than one simultaneously and, even when they escape, there are systemic reasons for which they are unusually likely to fall back into one. The discussion of the traps is particularly informative because of how quantitative methods have been used in support of anecdotal arguments.

Not only are ‘bottom billion’ states unusually likely to suffer from conflict, corruption, and similar problems, but some of the most important paths to growth used by states that have already escaped poverty are closed to them. To grow through the export of manufactured goods, you need both low wages and economies of scale. Even if wages in Ghana are lower than those in China, China has the infrastructure and the attention of investors. The presence of export-driven Asian economies makes it harder for ‘bottom billion’ states to get on a path to development.

Solutions

Collier’s proposed solutions include aid, military intervention, changes to domestic and international laws and norms, and changes to trade policy. Much of it is familiar to those who have followed development debates: the problems with agricultural tariffs, the way aid is often used to serve domestic interests rather than poverty reduction, corruption within extractive industries, and the like. His most interesting ideas are the five international ‘charters’ he proposes. These would establish norms of best practice in relation to natural resource revenues, democracy, budget transparency, postconflict situations, and investment. Examining them in detail exceeds what can be written here, but it is fair to say that his suggestions are novel and well argued. He also proposes that ‘bottom billion’ states should see import tariffs in rich states immediately removed for their benefit. This is meant to give them a chance of getting onto the path of manufacture-led growth, despite the current advantages of fast-growing Asian states. His idea that states that meet standards of transparency and democracy should be given international guarantees against being overthrown in coups is also a novel and interesting one.

Position in the development debate

Collier’s book is partly a response to Jeffrey Sachs’ much discussed The End of Poverty: Economic Possibilities for Our Time. Sachs pays much more attention to disease and has more faith in the power of foreign aid, but the two analyses are not really contradictory. Together, they help to define a debate that should be raging within the international development community.

Collier’s treatment is surprisingly comprehensive for such a modest volume, covering everything from coups to domestic capital flight in 200 pages. The approach taken is very quantitatively oriented, backing up assertions through the use of statistical methods that are described but not comprehensively laid out. Those wanting to really evaluate his methodology should read the papers cited in an appendix. Several are linked on his website.

Environmental issues

Environmental issues receive scant attention in this analysis. When mentioned, they are mostly derided as distractions from the real task of poverty reduction. It is fair enough to say that environmental sustainability is less of a priority than alleviating extreme poverty within these states. That said, the environment is one area where his assertion that the poverty in some parts of the world is not the product of the affluence in others is most dubious. It is likely to become even more so in the near future, not least because of water scarcity and climate change.

Climate change receives only a single, peripheral mention. This is probably appropriate. Surely, the effects of climate change will make it harder to escape the traps that Collier describes. That doesn’t really change his analysis of them or the validity of his prescriptions. The best bet for very poor states is to grow to the point where they have a greater capacity to adapt and will be less vulnerable to whatever the future will bring.

“THIS slip of a book is set to become a classic of the “how to help the world’s poorest” genre. Its author, Paul Collier, an Oxford economics professor, has spent 30-odd years puzzling mainly over sub-Saharan Africa and trying to work out why so many of its 48 countries have become basket cases. Crammed with statistical nuggets and common sense, his book should be compulsory reading for anyone embroiled in the hitherto thankless business of trying to pull people out of the pit of poverty where the “bottom billion” of the world’s population of 6.6 billion seem irredeemably stuck.

Mr Collier reckons that most of the bottom billion live in 58 countries, 70% of them in Africa and most of the rest in Central Asia. Since the 1990s, more than 4 billion people in the poor world have begun to move out of the depths of poverty, some of them very fast. But the countries where the poorest live have barely grown at all since the 1970s.”

Do you think this book would be a good selection for a book club of middle aged and men living quite comfortably in the relative paradise of Vancouver who generally are fans of fiction and good writing?

The case for military intervention is most obvious, if controversial. Civil wars are so costly that well-timed military actions are quite likely (though not certain) to be cost-effective.

The second area demands changes in high-income countries: ceasing to take money looted from the poorest countries is one such change; elimination of bribery by their companies is another. It also needs charters of better governance for countries in the bottom billion: transparent management of natural resources is among the most important, the UK’s extractive industries transparency initiative being a good start. The book also suggests charters for democracy, budget transparency, post-conflict situations and investment.

This idea sounds very naive. But the European Union has shown that external standards can make a big difference. Why should countries not sign up to charters of better governance in return for large quantities of aid? This is not imperialism. It is a bargain made in the interests of their own people.

The third suggestion is unrestricted access to the markets of high-income countries for labour-intensive exports from the bottom billion. Only thus, suggests Collier, are the resource-poor countries ever likely to break into world markets for manufactures.

Do you think this book would be a good selection for a book club of middle aged and men living quite comfortably in the relative paradise of Vancouver who generally are fans of fiction and good writing?

I suppose I was thinking of Oxford dinner parties when I wrote that. Even so, I can think of a good number of events I have attended (many far from hoity-toity) where the issue of international poverty has arisen in the course of discussion.

Today’s seminar for the Global Economic Governance Program was really excellent, discussing the future of the World Bank and International Monetary Fund. On the panel were Jon Cuncliffe, Paul Collier, and Ngaire Woods. Overall, I would say that they agreed more than they disagreed. They primarily identified and discussed two areas of interest: the global financial consequences of the emergence of China and India and the role the Bank and the Fund should play in assisting development within countries that are either stagnating, or finding themselves at the start of an awkward path to reasonable prosperity.

In March, professor of Economics at Oxford University Paul Collier gave a presentation on the topic addressed by his best-selling and award-winning book Bottom Billion: Why the Poorest Countries are Failing and What Can Be Done about It.

The presentation was jointly hosted by the Liu Institute for Global Issues, UBC President’s Office, and the International Relations Student Association.

Welcome to the Bottom Billion Blog, bringing together the latest news, opinions and case studies from across Africa and other countries of the Bottom Billion. With regular contributions from Paul Collier and others, the blog covers topics ranging across economics, business and technology and showcases exciting and emerging African opportunities.

Why is outside intervention necessary? The countries of the bottom billion are, paradoxically, too large to be nations, yet too small to be states. They are too large to be nations because, with rare exceptions, too many different peoples, with too many distinct ethnic and religious identities, live in them. This is not because they have large populations: on the contrary, the typical bottom-billion country has only a few million people. But these populations have yet to forge a strong sense of national identity that overrides older sub-national ethnic and religious identities. Considerable research shows that where sub-national identities predominate, it is more difficult for people to cooperate in providing public goods.

These countries are also mostly too small to be viable states, both when measured in terms of population—for example, the 49 nations of sub-Saharan Africa have a combined population barely half that of India—and, importantly, in terms of economic activity. As economies, the countries of the bottom billion are tiny, far smaller than most U.S. states, smaller even than the miniature European state of Luxembourg. Size matters: the production of public goods, by nature, is characterized by economies of scale…

If countries of the bottom billion are structurally unable to supply security and accountability, then some form of international supply is required.

I would read it, but this review makes it sound like the contents will be familiar to anyone with a general knowledge of environmental economics. Still, it is good to see that such an interesting scholar is considering such questions.

“Aided by the improved availability of survey data about living conditions for households in over 100 developing countries, the researchers have come up with a new index, called the Multidimensional Poverty Index (MPI), which the United Nations Development Programme (UNDP) will use in its next “Human Development Report” in October.

The index seeks to build up a picture of the prevalence of poverty based on the fraction of households who lack certain basic things. Some of these are material. Does a family home have a dirt or dung floor? Does it lack a decent toilet? Must members of the household travel more than 30 minutes on foot to get clean water to drink? Do they live without electricity? Others relate to education, such as whether any school-age children are not enrolled or whether nobody in the family has finished primary school. Still others concern health, such as whether any member of a household is malnourished. A household is counted as poor if it is deprived on over 30% of the ten indicators used. Researchers can then calculate the percentage of people in each country who are “multidimensionally poor”.

Looking at many aspects of poverty at once has several benefits. One problem with considering just one indicator is that some deprivations may be a matter of choice. As Mr Sen has argued in his work on poverty, what matters is not whether a person eats “enough” but whether he eats whatever he does out of choice. Fasting is fine; involuntary starvation is not. Some, for instance, may prefer the earthiness of a mud floor to the coldness of a concrete one. But the number of people choosing to be malnourished, illiterate, lacking in basic possessions and drinkers of dirty water all at once is probably fleetingly small. A person deprived along many of these dimensions surely counts as poor.”

Africa’s natural resources
Spread the wealth
The impressive growth figures of resource-rich African countries are not all good news

AFRICA’S ramshackle cities are wearing crowns of gleaming skyscrapers. Six of the ten fastest-growing countries in the world in 2000-10 were African; Angola grew faster than anywhere else on the planet. Parts of Africa have suddenly taken on a prosperous sheen, drawing talented exiles back to their roots now that they offer a decent living. Talk is of a virtuous circle in which growth feeds expertise, which feeds investment. Some of this new prosperity is the result of better economic policies, but more is the consequence of a boom in commodity prices that has spurred investment in mining and drilling as well as in office towers, bridges and roads.

Even if it is mostly the result of luck, who would begrudge Africa this renaissance? At last there is money to spend on helping the poor. The need is great: electrical power and clean water, transport networks that can boost regional trade, schooling and primary health care for all.

Sadly, many countries are squandering their best chance in decades. Equatorial Guinea’s elite hoards a fortune in opaque accounts. Chad channels wealth to bent officials. In Sudan they inflate the cost of infrastructure projects and siphon off funds. And state firms in Nigeria are “privatised” by handing them over to crony managers.

YESTERDAY it was Afghanistan and Congo. Today it is Côte d’Ivoire and Libya. Violence, it seems, is always with us, like poverty. And that might seem all there is to be said: violence is bad, it is worse in poor countries and it makes them poorer.

But this year’s World Development Report, the flagship publication of the World Bank, suggests there is a lot more to say. Violence, the authors argue, is not just one cause of poverty among many: it is becoming the primary cause. Countries that are prey to violence are often trapped in it. Those that are not are escaping poverty. This has profound implications both for poor countries trying to pull themselves together and for rich ones trying to help.

Many think that development is mainly hampered by what is known as a “poverty trap”. Farmers do not buy fertiliser even though they know it will produce a better harvest. If there is no road, they reason, their bumper crop will just rot in the field. The way out of such a trap is to build a road. And if poor countries cannot build it themselves, rich donors should step in.

China’s oil trade with Africa is dominated by an opaque syndicate. Ordinary Africans appear to do badly out of its hugely lucrative deals.

Aug 13th 2011 | from the print edition

WHEN the man likely to become China’s next president meets an African oil executive, you would expect the dauphin to dominate the dealmaker. Not, though, with Manuel Vicente. On April 15th this year the chairman and chief executive of Sonangol, Angola’s state oil firm, strode into a room decorated with extravagant flowers in central Beijing and shook hands with Xi Jinping, the Chinese vice-president and probable next general secretary of the Communist Party. Mr Vicente holds no official rank in the Angolan government and yet, as if he were conferring with a head of state, Mr Xi reassured his guest that China wants to “strengthen mutual political trust”.

Angola—along with Saudi Arabia—is China’s largest oil supplier and that alone makes Mr Vicente an important man in Beijing. But he is also a partner in a syndicate founded by well-connected Cantonese entrepreneurs who, with their African partners, have taken control of one of China’s most important trade channels. Operating out of offices in Hong Kong’s Queensway, the syndicate calls itself China International Fund or China Sonangol. Over the past seven years it has signed contracts worth billions of dollars for oil, minerals and diamonds from Africa.

BETWEEN 1951 and 1992 India received about $55 billion in foreign aid, making it the largest recipient in history. Now it seems on the verge of setting up its own aid-giving body. A spokesman for the foreign ministry says the government is in “active discussions” to create an India Agency for Partnership in Development (IAPD), an equivalent of America’s Agency for International Development (USAID) or Britain’s Department for International Development (DFID). Bureaucrats in other ministries are dragging their feet but Gurpreet Singh of RIS, a Delhi think-tank, says the government will announce the body within months, and give it $11.3 billion to spend over the next five to seven years.

India’s switch from the world’s biggest recipient to donor is part of a wider change shaking up foreign aid. Ten years ago the vast majority of official development assistance came from about 15 rich industrialised countries that are members of the Development Assistance Committee (DAC), a 50-year-old club of the aid establishment. Even today, America remains the largest single donor, dishing out $31 billion in 2010.

The latest estimates contain another nasty surprise. In the Middle East and north Africa the number of deeply impoverished people appears to have almost doubled in two years, from 10m to 19m. Two war-torn countries, Syria and Yemen, explain this growth. It is hard to be certain, given the difficulty of collecting data. But the Middle Eastern jump hints at a broad change. Increasingly, extreme poverty is found in chaotic, ill-governed places. Figures on hunger released earlier this month suggest that it is growing in Venezuela.